“We’re busy, business is booming, so why does it feel like we’re always short of cash?”
It’s one of the questions I hear most often from business owners.
Many assume that if revenue is increasing and the business is profitable, cash should naturally follow. Unfortunately, that’s not always the case.
Over many years of working alongside SME owners, I’ve seen some businesses constantly under cash flow pressure because cash flow wasn’t keeping pace with growth. My CFO background was in residential construction. An industry notorious for builders collapsing because of inadequate cashflow. Equally, I’ve seen businesses with modest turnover build strong, sustainable operations because they understood their numbers, had a low risk appetite, avoided borrowing and ensured they always had the cash in the bank to pay their liabilities.
Profit and cash are not the same thing.
Understanding the difference – and acting before problems arise – is one of the most valuable skills a business owner can develop.
So, what do successful businesses do differently?
1. They know their numbers
The best business owners don’t wait until the end of the financial year to understand how their business is performing.
They regularly review their financials and ask questions such as:
- Are our gross margins where they should be?
- Which products, services or customers generate the greatest profit?
- Are overheads increasing faster than revenue?
- Which customers are taking longer to pay?
- Is too much cash tied up in inventory?
- Have we got the cash to pay super, PAYG and GST on time?
- Are we generating enough cash to fund future growth?
Knowing the numbers is only the starting point. The real value comes from understanding what those numbers are telling you and using them to make better business decisions.
Monthly management accounts can help, but only when they provide information that is timely, relevant and easy to understand. Financial reports should not simply explain what happened last month. They should help the business owner decide what to do next with forward looking information.
2. They manage cash flow proactively
Cash flow problems rarely appear overnight.
More often, they develop gradually through a series of small decisions that individually seem insignificant but collectively place increasing pressure on the business.
Successful business owners regularly review:
- customer payment terms
- supplier payment terms
- inventory levels
- pricing and margins
- recurring operating costs
- staffing commitments
- tax liabilities
- capital expenditure plans
- rolling cash flow forecasts.
Cash flow forecasting isn’t about predicting the future perfectly. It’s about identifying potential issues early enough to do something about them.
A rolling forecast can help a business anticipate seasonal downturns, tax payments, loan repayments, major purchases and periods of rapid growth. It gives owners time to adjust spending, negotiate funding or improve collections before a cash shortage becomes a crisis.
3. They don’t use the ATO as a bank
One of the biggest financial risks facing Australian SMEs is growing tax debt.
Recent reporting by the Australian Financial Review highlighted that the ATO is owed around $100 billion in total, including close to $50 billion in collectable debt. Small businesses represent a significant share of that debt.
The article, ATO faces $50b tax shortfall as small business debts rise, also points to increasing pressure on the ATO to improve its debt collection performance.
Just last week I attended a seminar hosted by CAANZ on the topic of restructuring and insolvency. The panel of presenters all highlighted that they are seeing a lot of ATO activity to recover unpaid debts. The ATO is issuing many Director Penalty Notices to recover the tax debts from the directors personally.
Financially viable businesses do not take advantage of the ATO. The ATO is a stakeholder of your business and I strongly encourage my clients to treat that relationship with respect.
At the same time, carrying tax debt has become considerably more expensive. The Australian Taxation Office confirms that General Interest Charge and Shortfall Interest Charge incurred on or after 1 July 2025 are no longer tax deductible.
This means the after-tax cost of relying on unpaid tax as a source of working capital has increased significantly. In my experience, however, tax debt is rarely the underlying problem. It’s usually a symptom.
Behind it often sits one or more of the following:
- declining profitability
- poor cash flow forecasting
- inadequate pricing
- excessive overheads
- slow-paying customers
- insufficient working capital
- business drawings or distributions that the business cannot sustain, and
- not keeping your “eye on the ball”.
Addressing those underlying issues is far more valuable than simply negotiating another payment arrangement with the ATO. A payment arrangement may provide breathing space, but it will not fix a business model that is failing to generate sufficient cash.
4. They unlock cash already trapped in the business
Many business owners immediately assume they need more sales to improve cash flow. Often, they don’t. Cash is frequently tied up inside the business itself.
Ask yourself:
- Are invoices issued immediately when work is completed?
- Should we request deposits or progress payments?
- How quickly do customers pay? What are we doing about persistently slow payers?
- How good is our process at following up overdue accounts consistently?
- Are we carrying slow-moving or obsolete inventory, or have a significant work in progress balance?
- Are we making full use of supplier credit terms?
- Are unprofitable jobs or clients consuming valuable resources?
Improving working capital is often one of the fastest and least expensive ways to strengthen cash flow. Even relatively small improvements in debtor days, stock turnover or supplier terms can release meaningful amounts of cash.
The Xero Small Business Insights program regularly reports on how long Australian small businesses wait to be paid and how late invoices are paid. This provides useful context for business owners reviewing their own collection performance.
However, an industry average should not automatically become your target. A business should establish payment terms that reflect its own cash needs and then manage those terms consistently.
5. They review pricing and profitability
Growing sales won’t necessarily solve a profitability or cash flow problem.
In some cases, additional sales can make the problem worse, especially if you’re “buying business”. Competing on price can be a race to the bottom. I saw the outcomes of this during my many years in the residential construction sector where builders went broke because they had underpriced work on fixed price contracts and didn’t have the cash reserves to meet the cash demands of the business .
Business owners should regularly ask:
- Have our prices kept pace with increases in wages, materials and overheads?
- Do we understand the full cost of delivering each product or service?
- Which customers and services generate the strongest margins?
- Are discounts reducing our profitability without delivering sufficient value?
- Are we retaining work that is consistently unprofitable?
- Does our pricing reflect the value we provide?
Pricing decisions can be difficult, particularly when business owners are concerned about losing customers. But failing to review prices while costs continue to rise is also a decision – and often an expensive one.
Improving profitability doesn’t always require dramatic cost cutting or rapid sales growth. Sometimes it begins with a more disciplined understanding of the ideal customer, what the business sells, the value to the customer, what it costs to deliver and the margin it needs to generate.
6. They benchmark their performance
One mistake I frequently see is businesses comparing themselves only with their last year’s results. A much better question is:
How do we compare with businesses like ours?
Benchmarking helps answer questions such as:
- Are our margins competitive?
- Are labour costs in line with comparable businesses?
- Are overheads too high?
- Is inventory excessive?
- Are we collecting our debts quickly enough?
- Is the business generating an adequate return for the risks taken?
The ATO Small Business Benchmarks allow businesses in around 100 industries to compare measures such as expenses and turnover with similar businesses. The ATO’s Benchmarks A–Z directory provides access to the benchmarks for individual industries.
Chartered Accountants Australia and New Zealand has also published its Australian small business profitability and risk benchmarks report, which examines profitability, operating margins, wages and risk across different business categories and industries.
Other useful sources include industry associations, franchise groups and specialist advisers with access to relevant sector data.
Without context, it’s difficult to know whether your business is performing well or simply performing the way it always has.
Benchmarking often uncovers opportunities for improvement that aren’t obvious when reviewing your own financial statements in isolation.
However, benchmarks need to be interpreted carefully. Every business is different, and a variance from an industry benchmark does not automatically indicate a problem. It should prompt further investigation and better questions.
7. They use technology to work smarter
Technology including AI should never be adopted simply because it’s available and everyone else is doing it. It should be adopted because it aligns with strategy, improves efficiency, reduces risk, provides better information supporting more informed decision-making. You need to be clear about what you’re trying to achieve, and assess the cost benefits of the investment. This takes time.
In my experience SMEs are under resourced and struggle to keep up with the day to day. Finding time to research appropriate new technology, let alone implement systems enhancements is challenging.
Areas that I would focus on improving through workflow automation and systems integration include:
- faster invoicing and collections
- automate transaction processing
- dashboards showing leading financial and operational indicators
- alerts when results fall outside agreed parameters
- inventory management
- time recording and productivity analysis
- customer relationship management systems
- integration between sales and accounting systems.
MYOB’s Australian business research includes regular insights into SME digitisation, productivity and technology adoption. Its research has also explored how small businesses are beginning to adopt AI and where barriers remain.
But, a word of advice – before investing in any systems, technology, automation solutions I would encourage business owners to ask:
- What problem are we trying to solve?
- What financial or operational benefit do we expect?
- Will it integrate with our current systems?
- Who will take responsibility for implementation?
- How will we measure whether it has delivered value?
- What new risks or controls do we need to consider?
Without clear answers, technology can easily add complexity rather than remove it.
8. They monitor external risks
No business operates in isolation.
Global political issues, economic environment, legislative changes, industry conditions all have an impact on customer demand, payment behaviour, insolvency trends, interest rates, wages etc affecting profitability and cash flow.
The CreditorWatch Business Risk Index provides regular information on business payment behaviour, insolvency risk and economic conditions across Australian industries and regions.
The Australian Bureau of Statistics Business Indicators provides broader data on private-sector sales, wages, profits and inventories.
These resources won’t tell an individual owner exactly what to do. However, they can help businesses understand the wider conditions in which they are operating and test whether emerging trends are also appearing in their own results.
9. They seek advice before problems arise
One observation has remained constant throughout my career; the most successful business owners don’t try to do everything themselves.
They build a team of trusted advisers who challenge their thinking, ask questions and provide an objective perspective.
I’ve talked with many SME business owners who only engage their accountant at year-end to prepare financial statements and tax returns. And what I frequently hear from accountants is “I just wish my clients had asked me before they made that decision”.
The greatest value a qualified Chartered Accountant brings isn’t simply ensuring compliance. It’s helping business owners understand what the numbers mean, identifying opportunities and risks, and providing the financial insight needed to make better commercial decisions throughout the year.
A good bookkeeper is essential for maintaining accurate financial records. A qualified accountant brings insight. A good accountant partners with the business owner to answer questions such as:
- Why is profitability declining?
- Can we afford to employ another person?
- Should we increase our prices?
- How much cash do we really need?
- Is this investment likely to deliver an acceptable return?
- How should we finance future growth?
- Which parts of the business are creating or destroying value?
- How do we improve profitability without taking unacceptable risks?
That’s where real value is created.
Final thoughts
Improving profitability and strengthening cash flow isn’t about finding one magic solution. It’s about consistently making better decisions.
Businesses don’t become stronger by accident. They become stronger because their owners understand the financial drivers of the business, monitor performance regularly, manage working capital carefully, embrace technology where it adds value and seek trusted advice before small issues become major problems.
In my experience, the businesses that thrive over the long term aren’t necessarily the biggest or the fastest growing.
They’re the ones that understand their numbers, ask the right questions and use financial insight to guide every important decision.
That’s how resilient, profitable businesses are built.
